Stablecoins Explained

A stablecoin is a crypto token designed to hold a steady value, almost always one US dollar. They exist because moving in and out of ordinary bank money is slow, while moving between crypto tokens is instant. Browse the largest ones on our stablecoins page.

The three main designs

• Fiat-backed. A company holds dollars and short-term government debt in reserve and issues one token per dollar. This covers the large majority of the market. The key question is whether the reserves are real, liquid and audited.
• Crypto-backed. Users lock volatile crypto worth more than the tokens they mint, so the system stays solvent even if prices fall. Transparent, but capital inefficient.
• Algorithmic. Supply is expanded and contracted by code with little or no real collateral. This design has failed repeatedly and spectacularly, most notably in 2022.

What people use them for

Traders park funds in stablecoins between positions without leaving crypto. People in countries with high inflation use them as informal dollar savings. Businesses use them for cross-border payments that settle in minutes rather than days. They are also the base currency of most DeFi lending markets.

The risks behind the word stable

• Reserve risk. If the issuer's assets are not what they claim, the peg is a promise rather than a fact.
• Freeze risk. Centralised issuers can and do freeze addresses when ordered by authorities.
• Depeg risk. Even well-backed stablecoins have briefly traded below a dollar during banking stress.
• Yield risk. Earning interest on stablecoins means lending them to someone. The dollar may be stable, the counterparty may not be.

Check current rates between dollars and any coin with our converter.